Property Talk: Own or Rent?

Deciding between buying and renting a home is one of the biggest financial decisions for any adult. Buying a home is viewed as wealth creation and an asset accumulation, but with all the legal costs, down payment, maintenance, property insurance and taxes that come with buying a home, is renting the better financial solution?

There are many factors that you should look at before you make the decision of becoming a home owner to ensure that you’re making the best value-for-money decision. Explore your options below to help you decide whether you should stick to renting, or join the property owners club.

Why you should rent a homeFlexible

If flexibility and mobility are two of your priorities in life, then renting is the perfect solution for you. It makes sense especially if you are still uncertain about your career path, and open to relocation at any point of time.

Sure, you may need to cough up for the early termination fee (according to your contract) if you can’t find another tenant to replace you, but it’s far less of a mess than having to sell or rent your home before you leave the city – or country – to pursue your dream job.

Renting gives you the control over your length of stay – you can choose to stay for a year a two, or go on month to month basis if your stay is short. You just need to work out your contract with the landlord.

Faster option

All you really need to do to rent a house are literally look for your choice of home, contact the landlord, sign the tenancy contract, pay the down payment and presto, the place is yours for the agreed duration of time. The entire process can be completed within a day or two. It’s fast, simple and straight forward – none of those legal process or loan approval nonsense.

Moving into your rented home is made a lot faster – and economical – if you opt for a furnished unit. You don’t have to worry about buying new furniture or sleeping on the floor – just pack up the bags and you’re good to go.

Leave the repairs to the landlord

Home maintenance can be costly, but the good thing about renting is that most of the cost of home repairs (unless self-inflicted) are borne by the landlord. You can rest at ease knowing that if the water heater or washing machine stops working, or if there’s a leakage in the piping you can just contact your landlord to get those issues fixed.

The duration of time as to how long the repair works can be done usually depends on your contract. As a norm, most repair works are done within 14 to 21 days after notifying the landlord.

Cheaper option

The Tenancy Agreement requires you to provide an upfront payment to your landlord before moving into your rented home. It usually consists of 3 major things:

Refundable security deposit (2 – 3 months rent)

Utility deposit (half – 1 month rent)

Advance rental (usually 1 month rent)

Let’s just say that your monthly rent is RM1,500, the upfront payment that you’ll need to pay can be anywhere between RM5,250 to RM7,500. That looks like a lot, but still much less compared to the 10% – 40% down payment that you’ll need to put down for a home loan.

Your down payment and monthly rent will be significantly lower if you’re renting with friends, and you won’t need to worry about taxes or maintenance. The extra money that you have can be channeled to build your savings, and in time you can eventually afford to buy your own house. The savings can also be used to invest in a long term investment to secure your financial future.

Less stress

In the current unpredictable economy, a lot of people are suffering from the rising cost of living, not to mention the mass retrenchment that is happening more often these days. People are finding it difficult to afford other commitments such as family, car and student loans, much less afford a property.

Renting will give you the ease of mind knowing that in the event of unemployment, you just need to look for cheaper option while you get back on your feet, not having to worry about a mortgage loan.

The downside

Unlike buying a home, all the money that you’ve been paying for rent will not gain you an asset, which means that in no way renting is an investment for you. Of course, if you’re looking to buy your rented home in the long term, you can opt for renting with the option to buy.

You can add it in your lease contract with your landlord, so that if ever the landlord chooses to sell the property, you’ll have the exclusive right of being the first person to be notified on the selling of the property.

You can negotiate the amount of down payment that you’ll need to pay to own the property with your landlord, whether the rent that you’ve been paying count as a portion of the down payment or if it will be significantly lowered.

Also, as a tenant you will face the possibility of the rent rate being increased by your landlord upon end-of-contract review. The worst part is if the landlord decides not to renew your contract which means you’ll have to scramble for a new place in a short period of time.

Why you should buy a propertyFreedom and long term security

Owning a home would give you freedom in terms of not having to worry about rent increase (as you’ll be paying a fixed monthly instalment to the bank) and renovate or redecorate your home whenever and however you want, no permission needed. You’ll also gain the sense of security knowing that the home will be yours at the end of the mortgage loan, and that whatever happens, you and your family will have a place to fall back to.

Tax relief

Did you know that you can claim personal tax relief on your mortgage loan for up to RM10,000 in a year for 3 consecutive years? The amount (up to RM10,000 per year x 3 years of assessment) is deductible every year for 3 consecutive years of assessment from the date the mortgage loan interest is first expended. The mortgage loan rebate was implemented in 2010, however you’ll need to fulfill these criterion to be eligible for it:

Malaysian citizen who resides in Malaysia.

The purchase of the residential property is limited to one unit.

The Sale and Purchase Agreement has been signed from 10th March 2009 to 31st December 2010.

The said property must not be rented out.

Property investment

Your home is your property, therefore it is your investment. How you choose to make it into an investment is your own choice, whether you want to rent it out at a higher price than your mortgage monthly instalment or you want to sell it when the property’s value increase in the market. It’s also a good strategy to shield you against economic inflation, as you’ll benefit from the capital appreciation in the long term.

Retirement planning

With the certainty of owning your own property, you don’t have to worry about paying for rent at old age. You’ll have a lower cost of living in your retirement, and you’ll also have the option of selling your property and go on a long term holiday or settle down somewhere more comfortable – like a house by the beach.

The downside

Buying a home seem like the better option, but the costs involved are quite hefty. Some of the things that you’ll need to pay for (aside than the monthly mortgage loan instalment) include:

1). Upfront down payment

Banks are getting more stringent with mortgage loans, and few banks offer 100% loans or even 90% loans. You’ll need to prepare a minimum of 20% down payment at the very least, to be on the safe side. Even so, that can still be a huge sum to save up for. You have the option of withdrawing from your Employees Provident Fund (EPF), but you’ll need to pay for the down payment first, and later claim it from your EPF’s Account 2 savings. You can consider getting a personal loan to cover the gap too!.

2). Additional upfront fees

These include Sales & Purchase Agreement (SPA) fees, stamp duties, agent fees and legal fees. Depending on the property, the fees could add up to a few thousand ringgit. You can ask your bank if they offer ‘Zero Entry Cost’ (ZEC) loan, although it’s highly not recommended as you’ll end up with a higher interest rate.

3). Quit rent

Better known as cukai tanah, this is a local tax levied on all landed properties and is collected by the State Governments in Malaysia. This tax is payable annually, typically before May 31st every year. The chargeable amount varies from state to state – even district, and is generally estimated to be less than RM100 per year.

4). Property assessment tax

Another local tax in this entry, property assessment tax or cukai pintu is imposed on every household for general maintenance and construction of public infrastructure. It’s an biannual tax and is charged based on the estimated annual rental value of your property, multiplied by a set of rates that are stipulated by your local authorities.

5). Homeowners and mortgage insurance

While a homeowners insurance policy is a must have to protect your property for risks such as fire, flood and earthquake, mortgage insurance is equally important in order to protect your mortgage loan in the event of death, disability or illness. Mortgage insurance comes in two variety – Mortgage Reducing Term Assurance (MRTA) and Mortgage Level Term Assurance (MLTA).

6). Sinking fund

This fee is applicable to all strata properties, and is basically a communal savings fund collected by the property management for major repair or maintenance and refurbishment works such as repainting the building or broken elevators. These major repair-works and uplifts usually cost an arm and a leg, so with the sinking fund, you shouldn’t be paying for any additional payment to your property’s management.

7). Maintenance

As the master of your own property, the costs of all kinds of maintenance will need to be borne by your good self. That mean’s that when there’s a pipe burst in the toilet of the refrigerator malfunctions, you’ll need to fork out for the cash out of your own pocket. For strata property holders, the property management will usually charge a monthly maintenance fee for light repairs and general maintenance.

There’s also the furnishing – and renovation – costs that you’ll need to factor in when you own a home. Moreover, there is the risk of your property’s value declining due to various reasons and that will seriously hurt the investment that you’ve put into your home. Long story short, you’ll need to prepare a huge sum of money – apart than your monthly mortgage instalment.

The verdict

There are pros and cons to everything. When it involves a life-long financial commitment, take extra care before you decide to apply for a loan and sign the Sale and Purchase Agreement. Single individuals whose careers are just starting to bloom and newly-wed couples should stick to renting and concentrate on building a stable and balanced financial life before committing to buying a property.

Notwithstanding the above, now is also a good time to invest in property if you have solid financial standing and in depth knowledge in property purchase. This is due to the fact that the government is building more affordable housing units in accordance to the 2013 Budget. That aside, more property owners are selling their assets at lower prices that the actual market value to attract buyers due to the rising cost of living.

Traditionally speaking, it’s better to buy a house than to rent, as you’ll eventually be the master of your own home. But in this modern day, the younger generation should aim for financial stability and independence before all else, and renting helps you achieve those aims without taking away a huge chunk of your income.

We at CompareHero.my strive to empower Malaysians with financial literacy and the tools to make better financial decisions in life.

Article source: CompareHero.my About Syaza Abd Jani

Syaza is a Content Writer at CompareHero.my, with sharp eyes on the latest sales and bargains. When not busy with work, she can be found at breezy and airy corners leisurely reading whilst munching on something chocolaty.